Essential Fintech Reading: July 2-8

The demand for mobile banking solutions is rising among small businesses according to new data released by Raddon Financial Group. 52 percent of SMEs surveyed by Raddon indicated that they rely on mobile banking platforms to manage and access their accounts, a number that rises to 68 percent among millennial SME owners.

Writing for the Financial Brand, Raddon senior research analyst Marcus Rothaar observes that mega-banks are dominating in small business market share; 68 percent of small businesses cite a mega-bank as their primary financial institution, compared with only 41% of retail customers..

Mobile banking capability also helps cement primary FI status. 50% of mobile banking businesses said their use of mobile banking has made them more likely to remain with their financial institution.

Rothaar notes that small businesses also have a "higher propensity to expand relationships with their mobile banking financial institution. This includes an increase in the likelihood that the (business) will be in the market for new loans, deposits, or other business services."

An Innovate Finance survey found that many UK fintech startups were indeed considering relocation to continental Europe:

In the wake of Brexit, Robinson writes that Innovate Finance has lobbied the UK government to "preserve two crucial measures: unfettered access to Europe's single market through a process called 'passporting,' and the ability of EU citizens to easily come to work in the UK."

The UK has long dominated in fintech funding but the shocks of Brexit could place its position in jeopardy.

A Big Bank Merger Panacea?

Writing for Bloomberg, Ambereen Choudhury and Aaron Kirchfeld suggest that the shocks to the European banking sector — at its lowest valuation since 2011 — open the door for consolidation, although regulators could still stand in the way. Among the deals that could make sense are the purchase of Deutsche Bank by Barclays, the purchase of Deutsche Bank by Santander and JP Morgan acquiring Standard Chartered, which would expand the bank's presence in Africa after it was denied entry by Kenya and Ghana. The piece notes that a Wells Fargo acquisition of Credit Suisse would also be compelling, providing Wells Fargo with access to the Swiss bank's wealth management and investment banking units. "Wells Fargo’s market cap has swelled to more than $230 billion, making it the most valuable U.S. bank, because of its focus on retail and commercial lending," write Choudhury and Kirchefeld, conceding that there "could be an investor backlash if they stray from their core into the riskier business of investment banking."

The International Monetary Fund estimates that there's $1 trillion in bad debt on European banks' balance sheets. While mergers could offer the opportunity to trim costs, their past failure is still fresh in regulators' minds. Royal Bank of Scotland's acquisition of ABN Amro in 2007 was followed by the world's largest bank bailout a year later and Bank of America's 2008 acquisition of Countrywide was similarly disastrous.

Chase Promises Lower Processing Fees To Merchants

Aaron Back of the Wall Street Journal reports that Chase is setting up its own payments network, Chase Pay, to undercut rivals. While PayPal charges merchants a relatively high 2.9% on every transaction, banks like J.P. Morgan Chase are in a position to charge less. "Chase can afford to undercut rivals in this way because, unlike companies like PayPal or Visa, transaction fees aren’t its primary source of income," writes Back. "Its main interest is in maintaining relationships with businesses and individuals, so it can hold their deposits, lend them money and offer them other banking services."